Today’s family farms face a number of challenges: protecting income and viability, insuring property and crops, and perpetuating the family business through succession planning.
The good news is that an insurance professional who specializes in agribusiness can help you with all of these. Below, we’ll look at several crucial aspects of family farming where your insurance advisor can help your enterprise thrive.
Securing the right insurance for your farm
Since no two farms are alike, your insurance advisor will likely visit your farm and walk the property with you to look at your buildings, livestock and fields.
Insurers often cover a family farm’s residence and operation in a single farm policy. Farm policies are similar to a homeowners policy, but they also include other structures such as barns, silos, sheds and greenhouses. And they include liability coverage to protect you against claims of injury and property damage.
A farm policy that covers all your property
Like a homeowners policy, a farm policy protects against fire, lightning, theft, vandalism, burst pipes, hail, wind and other perils named in the policy. Be sure to discuss with your advisor about what’s included. Some perils such as flooding, earthquakes and other catastrophes must be purchased as separate coverage or may be uninsurable.
You’ll likely need an appraisal or recent estimate of the value of your farm, including the buildings and equipment you own. These will be used to determine how much insurance you can and should purchase so that you have enough coverage to pay for a loss and rebuild your farm if it is completely destroyed. The premium you pay will be based on your chosen levels of coverage, called limits.
Most residences are insured to their replacement cost – that is, the cost to repair or replace a building using the same kind and quality of materials. Actual cash value (or market value) may be an option for barns, older buildings or structures that aren’t in use. Actual cash value is the replacement cost minus depreciation.
Other types of property coverage
There are many other types of property you need to insure besides buildings. These include farm equipment, machinery, irrigation systems, driveways and fences. In some cases, it makes sense to purchase blanket coverage for all of these risks. In other instances, you may be better off with “scheduled” coverage, which is where you choose specific items to insure and for how much.
You may also need additional coverage if you raise horses, grow grapes for wine, or produce milk. Your advisor should be able to offer specialized coverages for those risks that fall outside a standard farm policy, including equipment breakdown and lost revenue.
If you own commercial vehicles that are used off your farm, you’ll need to purchase commercial auto coverage, which provides liability and collision protection.
Cover your farm’s liability exposure
Your farm policy should have general liability coverage to protect against claims of bodily injury, property damage, medical expenses or personal injury.
General liability insurance pays for accidents that occur as a result of your operation, both on and off the farm. These might include a tractor causing an accident on a public road or someone getting injured by a spooked animal.
Liability insurance helps pay for your legal defense and any judgments against you, subject to the limits in your policy. Some common exclusions include farmers markets, agritourism, chemical spray drift, and the use of aircraft. You can insure those separately if you participate in such activities.
Product liability and pollution liability are also typically excluded. Product liability claims could occur if you sell eggs, milk, fruits, vegetables, jams or other food products. Pollution liability might include not only chemical and pesticide injuries but also smoke from burning pastures and manure from your livestock. You’ll need to purchase the coverage separately or add it as an “endorsement” to your farm policy.
Finally, keep in mind that liability insurance doesn’t cover the employees of your farm. For employee coverage, you need workers’ compensation insurance. Family members who are employees can also be covered by workers’ compensation insurance.
Workers’ comp pays for lost wages and medical expenses. Even though many states don’t require farms to purchase it, it makes sense to consider workers’ comp insurance since farming is a dangerous occupation.
Succession planning is critical
If you want to pass your farm on to a family member or great employee, you can get help through certain insurance policies and financial programs.
That includes creating a means of transferring ownership, both through a retirement succession plan as well as an emergency or death succession plan. Using these financial instruments, you can craft a plan that doesn’t require the next generation to go into debt.
Probably the most crucial of these is a key-person life insurance policy with the death benefits paid to a beneficiary who will use proceeds to sustain the farm. Your insurance advisor can help you work out the details so things go smoothly both legally and financially – even if there is an unexpected death.
You can use life insurance for a partner, a family member, or some other legal beneficiary, and it can be bought in addition to other life insurance that you have for your family’s or heirs’ financial care. Individual term life insurance and whole life insurance proceeds are not tied to a specified business use the way key-person benefits are.
Family farms may be owned by families, but that doesn’t mean they aren’t businesses. Like any commercial business, your farm needs insurance to protect your property, equipment, livestock and crops. And it needs a business continuity plan to ensure your heirs can keep the land and preserve your family’s legacy. Turn to a specialist in insuring family farms for the best care in protecting your farm today and sustaining it in the future.